Advanta Corp. caught the headlines again last week, announcing an accepted offer on the sale of its mortgage portfolio to an undisclosed buyer.

Though rumors circulated that Chase Manhattan Bank could be the suitor, a source close to the situation said that, while Chase had shown some interest in the portfolio, Chase is definitely not the undisclosed buyer.

Advanta did not return phone calls as of press time last Thursday, and Chase declined to comment.

All and all, equity analysts viewed the announcement as positive, and Advanta's stock soared on the news.

According to a source following the company, the portfolio will be sold in excess of book value, which is approximated at $1 billion. With the proceeds, Advanta said it will pay down $360 million in term debt, and retain somewhere between $250 million and $400 million in cash.

From Advanta's Q&A conference via the Web, it was unclear what will be done with the remaining proceeds, or how much equity (if any) Advanta will receive from its suitor.

On the same day of the announcement, Moody's Investor Service downgraded Advanta Corp.'s corporate debt rating, and the ratings on Advanta National Bank's deposits.

Moody's cited Advanta's monoline-like exposure following the sale of its mortgage business. Advanta has said it also plans to either sell or dissolve its leasing businesses, which will concentrate the source of the company's revenue on its small-business credit card product, which is said to be a lucrative short-term, untested long-term.

For example, in a press release from the agency, Moody's cited the possibility of a decline in credit quality of Advanta's small-business clients in event of a recession.

Meanwhile, Advanta was able to meet the stringent regulatory capital guidelines that were set down by the Office of the Comptroller of the Currency earlier in the year. The company said it reached the guidelines through securitization, booking approximately $49 million gain-on-sale income for the quarter.

Advanta came to market twice in the third quarter, securitizing a $600 million portfolio of small business credit cards, and a $650 million portfolio of home-equity loans.

As for the sale of Advanta's portfolio and its impact on the company's outstanding paper, rating agency sources said it's too early to tell, given that the name of the suitor and the terms have yet to be disclosed. Factors that will determine a ratings action include if, when and how a servicing transfer will be carried out, as well as the servicing capabilities of the suitor.

Sources speculated that the buyer of the portfolio would likely be an entity well versed in home-equity and subprime lending/servicing. Names thrown out there included top-tier players Countrywide Credit Industries and GMAC's Residential Funding Corp. (RFC), though neither company was contacted for this story.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.